Property enters "millionaire-makers'" phase
Young investor who lives off his real estate assets says stocking up on carefully selected residential property now will prove profitable.
Realestateweb guest columnist Brennan Carey, a professional property investor, shares his thoughts on the current market.
South Africa in the current political and economic climate has many challenges - of that there is no doubt. Those who choose to stay face many challenges, no matter what their race. They need to look at both the short-term issues and the long-term opportunities to see whether this country holds a future for them and their families. Many are leaving; many will stay; many will also come back. The decision to stay is based on gut feeling for many. If you are preparing to stay it's up to you to make it work. You can't sit back waiting for the government to do it for you.
As a white South African in my mid 30s, and current full-time property investor, I grew up in a time when black people were not allowed to attend the same school as me or live in the same neighbourhoods. My parents and I lived a life of privilege.
Free education, free health care and sheltered employment. Unfortunately we are now realising the cost of all that was free, and it is clear those luxuries were in fact quite expensive. I grew up to fear all that was black. The year 1994 was seen as the end of the world and freedom for all white South Africans.
My working career was one where affirmative action resulted in me not being first choice for jobs, yet determination saw me through. In the late 90s I started to educate myself about property and today I own a decent amount of investment property and don't have to work for an income. Although I am not where I need to be yet, my path is clear and defined and I continue to grow.
I raise these issues because as a South African property investor I see the future of this country as bright. There is potential for black and white South Africans to succeed in this country of ours. All the negativity in SA takes its toll on many, I agree. But, as a property investor, I have taken the long-term view that I have a lot to offer the country of my birth and in turn SA has a lot of opportunities for me. I choose to be the best South African I can be.
Property as any asset class will face its ups and downs. Currently we are in one of those phases where sentiment is down, interest rates are up, inflation is high and affordability is down. Estate agents are going out of business and by the time the market has stabilised many will have been culled. The same holds true for property investors who bought when the supply of property exceeded the demand and yet they still chose to pay a premium with the "belief" that you can never lose in property. Unfortunately this is not true. As with any investment, sound buying principles need to be followed.
In addition, property economists working for banks are viewing the asset class as risky because we are at a stage of the market where yearly capital appreciation of the asset class is not seeing positive growth - affecting the security against bank loans. Most banks are not issuing 100% loan-to-value bonds because they fear the risk of negative equity. These economists are employed by the banks to protect the risks of the banks so in times of negative growth they need to protect their business which is lending money.
Banks are not interested in rental yields or investor cashflow. Their sole concern is protecting their risk and mortgages, so they don't understand the fundamentals of buying property or the drivers for investors.
Homeowners, many of whom got into the property market during the boom, will go into foreclosure as the rate of insolvencies continues to rise. These buyers were sold an investment dream by estate agents who convinced them that property was the perfect investment that you got to live in and enjoy.
Most did not realise that the home you occupy is a liability until the day its paid and only then does it become an asset. They bought from sales' people who know how to sell and have no understanding of property as an investment class.
Many of these buyers will have no option but to sit it out as property eventually beats inflation. As long as they can pay their monthly instalments or work a plan with their banks they will survive.
These situations and market conditions do, however, create fantastic buying opportunities for buyers who have cash or can qualify for finance and these times are commonly known as the "millionaire-makers' phase" by property investors. These investors are taking advantage of the conditions to phase in their asset purchases.
Admittedly for most investors the current market does not have the same "boom time" appeal of the growth and expansion years we saw in SA earlier this decade, but there is money to be made for those that can buy now and hold out.
Brennan Carey is a full time SA property investor and is currently looking to buy below market value properties (Ibuyhouses@thenet.co.za).
Article by: Brennan Carey from: www.realestateweb.co.za